Business Model Alarm Bells

This blog was written by Isaac Jeffries, an associate of TDi.

Filling in a business model canvas is a means to an end – creating a company that is desirable, feasible and viable.

If there are any issues with the idea, let’s get them out on the table now – in an environment where they are easy to address, or we can convince ourselves to steer clear of a potential disaster.

Alarm bells create panic. They also save lives.

By understanding the issue early, we give ourselves the best chance of survival. Sometimes it’s a false alarm, like when your hot shower sets off your smoke detector. That’s why we approach these alarm bells with optimism and curiosity – either there’s no issue, or we get to find our weaknesses and fix them.

Here are some examples of Alarm Bells and Red Flags that should prompt further exploration.

“We only have one customer”

The issue here is that you have all of your eggs in one basket. One huge customer can kickstart a business, but they can’t be relied upon. The model needs to be appealing to a deeper market of customers, so that one customer doesn’t have unfair leverage over prices and contract terms.

If the idea is only appealing to one customer, maybe it’s not a strong idea?

“We are dependent on one staff member”

Bootstrapping is the art of improvising with limited resources, and it’s the best way to start a new business.

Over time, bootstrapping creates bottlenecks – if only one person can deliver your value proposition, then they become irreplaceable. That means the business can’t grow quickly, and there’s a great deal of risk around that person leaving.

You either need to be able to afford to recruit specialised staff, or become great at training new people in your methodologies.

Otherwise your founders can never step back from day-to-day operations, and you’ve created a job instead of a business.

“We operate a lot of channels”

It’s easy to engage with your customers on a number of fronts – email, web, shopfront, social media, package delivery, etc.

However, it is challenging to do these well.

Can you dedicate enough energy and attention to master each of your channels? If not, it’s time to start making cuts, getting back to the essential elements and over-delivering on each interaction.

“We have lots of key activities”

As above, it’s hard to be truly great at thirteen different things. Too many activities divide your energy and attention, leading to mediocrity across the board.

Ask yourself: what business are we really in?

Which activities are best done by our team, and how do we handball the others to a key partner?

People don’t care for 10% improvements – your idea needs to be significantly better than what’s currently on offer, or else people will stick with what’s comfortable.

“We are all things to all people”

You can’t please everybody. It’s better to have a smaller, loyal customer base who love you than to try and be generally liked by the entire market.

Kevin Kelly talks about the need to have “1,000 true fans” who will be your core customer base and act as your evangelists. Find your niche and delight them.

As Seth Godin said – nobody gets a Suzuki tattoo.

“Our customers aren’t paying anything”

It’s worth remembering in life – if you use a service and don’t pay for it, you’re not the customer, you’re the product.

Yes, we need to engage and delight the end user, but we also need to thoroughly understand the motives of the person who is paying our invoice. What are they looking for? How do they make decisions? How do they measure success?

“Customers only make one purchase”

Repeat customers are efficient – by winning them once we can enjoy a stream of sales. It’s much cheaper to retain a customer than it is to bring on somebody new.

If our model doesn’t allow for repeat business, then we need to constantly engage new prospects. It also means that our customer base may dry up over time – meaning we may exhaust our market just as we approach our breakeven point.

“We can’t find enough customers to do much testing”

If you can’t find enough people for a test, then there’s either an insufficient market or you’re looking in the wrong places. Your model should respond to a real pain point – one that is shared by a large enough niche.

“We need to push uphill to make sales”

People need to want what you sell. Sure, you might need some momentum, but things should get easier over time as you find your tribe and build a base of happy customers.

If you’re always twisting arms, maybe it’s time to adjust. Seth Godin said it best – find a business you can push downhill.

“Our model relies on generosity/altruism”

Generosity is fleeting; a brief and refreshing experience for your customer, not the main basis of their decision making.

We want to pair social good with something that solves a problem for our customer. Charity is quickly exhausted, whereas self-interest stays motivated forever.

If this is our main value proposition, then we either need to dominate at customer acquisition or customer retention, preferably both.

“We have a high breakeven volume”

Life becomes stressful when it takes a lot of sales to break even. The danger is that you find a heap of customers who love you and yet you still go bankrupt.

By structuring the model so that it takes fewer sales to break even, we give ourselves the best chance of survival. It might be time to explore a switch to variable costs, renting rather than buying, and forming clever partnerships.

“Our model requires large upfront investment”

As Robert Herjavec says, you want to invest to support the sales, not to create the sales. That is, make something popular then invest to decrease your production costs. If you invest before you’re popular, you take a huge risk that you can’t afford to get wrong.

If you can’t avoid the upfront costs, at least do some serious testing to validate that there is a strong market who are delighted by your price points.

If any of those sounds all too familiar, it’s time to experiment some new business model designs. Grab a canvas or a whiteboard, and dream up something slightly mad – new customers, new value propositions, new ways of delivering your service, new price points.

Isaac was TDi’s first ever employee, and has worked with over 180 impactful businesses around the world. He’s currently designing and building social enterprises in India, Papua New Guinea and Indonesia. He writes at isaacjeffries.com

When was the last time you asked your customers what they thought? We use Customer Empathy Interviews to help businesses deeply understand their customers and design competitive products and services. It’s also been one of our top coaching tips for business owners...

A conversation with Geert from FarmWallGeert Hendrix founded FarmWall in 2016. Farmwall is an agrifood-tech startup that designs urban farming technology and experiences to enhance fresh produce accessibility in the city. In our constantly developing world, the need...

It’s one thing to make the choice to work from home, but it’s another to be forced to for reasons beyond your control. Even the seasoned work from homers are feeling the pinch in this time of forced isolation – I am no exception!! Oh, and throw in supervision of remote learning for your children and it’s even more challenging.

Two weeks ago, I shared with the team an analogy of a campsite. I reflected that our house has burnt down and we are struggling to reconcile the shock and the grief of all that is happening. I shared with them that I’ve been thinking that we need to set up camp, for now while we figure out how to reinvent for the new normal. We have a temporary place of residence and it’s not what we would have chosen but we can create from it. So, for the past two weeks, we have been focused on getting the campsite set up, trying to work out where stuff goes, who’s sleeping where and how to trade out of a tent.

Meet Difference Maker James Morgan and cultural tourism entrepreneur. James was a participant of our most recent Indigenous Business Australia (IBA) Accelerator Program. “I feel privileged to have an education, but I had to move away. I want to create more...

It fascinated us that creative industries aren’t included in Papua New Guinea’s GDP, in fact there is very little data to understand the economic impact of creative industries in PNG. This is staggering considering that creative industries represent $US2.250 Billion in the global economy (World Economic Forum, 2015). This includes all creative industries including visual arts, media, TV, music etc. Other research suggests Handicrafts contributes around US$32 Billion to the global economy (The Aspen Institute Artisan Alliance) but this is a difficult figure to nail down when whole economies don’t even count handicrafts in their GDP.

Other interesting facts from the World Economic Forum’s study found that Creative industries are more inclusive employers employing more youth (15-29 years) than any other sector, employ a higher percentage of women compared to other sectors globally and small business makes up a large portion of this sector as well. In the US artists are 3.5 times more likely to be self-employed.

What is TDi? This is a question we are asked all the time, and have struggled to answer with real clarity. TDi started as a private quest in response to societal problems, long before it became a public conversation which culminated into the entity today we call The...

We Work With

Case Studies

The TDi team acknowledges that we work, live and play on Aboriginal land, our offices are located on the land of the Wurundjeri people of the Kulin nation & we pay respect to their elders past present and future. Where ever our work takes us, we acknowledge the traditional land owners and pay our respects.